Instacart enters my pantheon of Imploded Stocks.
By Wolf Richter for WOLF STREET.
Instacart – whose official name is Maplebear [CART] – is an app that pays a bunch of people to pick merchandise at grocery stores and at other retailers, and deliver the stuff to the person that ordered it on the app. You’ve seen these frazzled guys, smartphones in hand, trying to find stuff in a store they aren’t familiar with; you’ve seen them at the checkout with two separate orders that have to be rung up separately.
With the money the company raised from venture investors, it bought some other companies, and added some other activities, but that’s largely it. It’s not rocket science, but it can be profitable as long as someone is willing to pay for the service, and as long as it can find people willing to do the picking and delivering for what must be relatively little pay.
Picking stuff at stores and delivering it was a hot thing during the pandemic. All startups were hot during the pandemic. Anything was hot. And valuations soared.
And so at its last round of funding in March 2021 – following that infamous February when the whole hype-and-hoopla bubble started to come apart – Instacart raised $265 million from existing VC investors including Andreessen Horowitz, Sequoia, and D1 Capital, and from existing institutional investors including Fidelity and T. Rowe Price. They invested at $125 a share, per PitchBook data.
It’s even worse for investors in the secondary market where private-company shares are actively traded before their IPOs. In the secondary market in 2021, shares traded as high as $133, according to PitchBook, citing data from secondaries platform Zanbato.
But then, the SPAC bubble collapsed and the IPO bubble collapsed with it, and valuations went to heck, and lots of those companies, after they went public via IPO, direct listing, or merger with a SPAC, then ended up in my pantheon of Imploded Stocks.
Then we had the magnificent rally in the stock market this year into July – with so much hype and hoopla especially about AI swirling around that the EPA was forced to issue an air pollution warning. And so it was deemed that the shuttered IPO window had reopened. And the company had its IPO on September 19, with an IPO price of $30 a share. When trading began, it opened at $42 and then plunged. Today, it trades at around $30.
So the shares, at today’s price, have already plunged by 76% from the share price at the last round of funding. And they have plunged by 77% from the peak prices in the private companies secondary market.
This plunge in share price makes the company eligible for inclusion in my Imploded Stocks pantheon (to be eligible, it must have dropped by 70% or more from the peak).
Those losses weren’t taken by regular retail investors at least not directly – except those few if any that bought the $42 pop at the open.
Those losses were taken by the smart money: VC firms and institutional investors that invested in the company at $125 a share, possibly falling for their own hype and hoopla or simply sticking to the normally very profitable business of counting on the greater fool out there to buy at an even higher price, and that greater fool tends to be retail investors.
So that’s Andreessen Horowitz, Sequoia, D1 Capital, Fidelity, T. Rowe Price, et al that took those losses, at least on paper.
And the losses were also taken by more smart money: Investors buying Instacart’s shares in the private-companies secondary market. They’re hedge funds, family offices, funds that specialize in private companies’ shares, and retail investors with access to private-companies trading platforms.
Even in the months before the IPO, Instacart’s shares in the secondary market already traded down at around $30 a share, according to Zanbato’s data, cited by PtichBook. By then, the big losses were had already been taken – which also explains the IPO prices, because that’s where the market was.
If those investors – including those that invested in the later venture rounds – haven’t sold yet, they’re sitting on deep unrealized losses. And there are lots of companies out there in a similar predicament.
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